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Pentagon says not worried about F-35 costs/orders 'death spiral'

By Andrea Shalal-Esa

NATIONAL HARBOR, Maryland (Reuters) - The Air Force general who runs the Pentagon's $392 billion F-35 program on Tuesday said he was fairly optimistic the new Lockheed Martin Corp fighter jet would survive the next round of U.S. budget cuts, but said he was determined to continue lowering its cost.

Air Force Lieutenant General Chris Bogdan told the annual Air Force Association conference the F-35 program was making slow but steady progress, and that he saw strong continued support from the U.S. military services and foreign partners.

Given that support, he said he no longer worried that the F-35 program would be afflicted by a so-called "death spiral" in which cuts in orders trigger rising prices that lead to further cuts in orders and ultimately undermine the program.

"I do not think this program will suffer from that model. I just don't think it will," Bogdan said, noting that he saw no indication that the U.S. Air Force, Navy or Marine Corps planned to significantly reduce their orders for the F-35 program, despite mounting budget pressures.

The F-35 is designed to be the next-generation fighter for decades to come for U.S. forces and their allies. The F-35 program, hit by technical faults, is several years behind schedule and 70 percent above cost estimates.

In past years, Bogdan had expressed concern that budget cuts in the United States and elsewhere could undermine the program by unleashing the dreaded "death spiral." But over the past year, Australia, Norway and other countries have redoubled their commitment to the program, and U.S. officials have said they will protect the program from further cuts.

On Tuesday, the program got more good news when the Netherlands became the seventh country to make a firm commitment to buying jets. More than half of the orders that will fuel a hefty jump in production rates in coming years will come from international buyers, Bogdan said.

Bodgan said the program had weathered mandatory across-the-board budget cuts in fiscal year 2013 without losing any planned jets, or development funding. While the outlook for the coming year was less certain, senior Pentagon leaders were committed to ensuring the program's continued survival, he said.

"Even if services were to move airplanes to the right and lower our ramp rate, we still have the partners there that are creating that upward ramp rate which is what we'll need eventually to drive the cost of the airplane down," he said.

He said he expected industry to continue cutting the cost of the plane in every production contract they signed. "You can have to best airplane in the world ... but if nobody can afford it, it does you no good," he said.

Bogdan, who took over as head of the Pentagon's biggest weapons program in December, said communications between his office and the companies building the jet - Lockheed and engine maker Pratt & Whitney, a unit of United Technologies Corp - had improved greatly over the last year.

"The communication that my program office has today with Lockheed Martin and Pratt & Whitney is orders of magnitude better than when I got here a year ago," he said, as top executives from both firms nodded in agreement in the front row.

"When you start communicating and you start listening to each other, you start find solutions to problems instead of finding blame," he said.

Bogdan last year described relations between the government and the companies building the F-35 fighter as the "worst" he had ever seen in decades of working on major weapons programs.

Bogdan said he had seen great improvement in the relationship this year, but the plane had also made progress in flight testing, production and bringing costs down.

He said there were still areas that needed improvement, including improving the reliability of airplane parts, but his top concern was driving down the cost of the airplane.

Bogdan said the contractors had agreed to fund and set up a "cost war room" to aggressively work on improving the longer- term cost of producing and operating the new planes, mirroring an approach taken by the Navy on its Virginia-class submarines.

Lorraine Martin, Lockheed's F-35 program manager, told reporters the program had made "incredible progress" over the past year on technical challenges with a complex helmet that fuses data from the plane's sensors, the plane's ability to survive lightning storms, software development and moving ahead with a computer-based logistics and operating system.

She said the company was "pedalling" as fast as it could to catch up on flight tests after delays linked to two engine-related groundings earlier this year, and civilian furloughs.

Lockheed and Pratt officials have also underscored their focus on driving down the cost of the new jets.

(Reporting by Andrea Shalal-Esa; Editing by David Storey, Eric Walsh and Ken Wills)

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